This article was published on www.maverick-law.com
This year we will again see a great deal of litigation on youth services procurement. The freedom of contracting authorities to organise contracts will also be clarified. It will furthermore be interesting to see whether contracting authorities will demand more cooperation of tenderers that have been involved in bid rigging in the past. Tenderers must in any event beware of unlawful cooperation and prohibited exchange of information in tendering procedures. The Netherlands Authority for Consumers and Markets (“ACM”) has set its sights on the tendering markets.
Youth services procurement
In 2019 we are again likely to see a great deal of litigation on tendering procedures in youth services procurement. Several high profile legal actions were conducted in this field in the past year. First, the judgment passed by the Court of Appeal of Den Bosch on the rates in the Tilburg region. The Youth Act requires that municipalities guarantee a sound ratio between the price for the supply of youth care and the requirements set regarding its quality. The Court of Appeal upheld the Court’s finding that the rates for the package of services offered by GGZ Breburg are not in reasonable proportion to the services provided. Please note that municipalities are not required to guarantee that every individual provider can live with the rates; they must merely guarantee a sound price/quality ratio for all the services purchased.
The fact that municipalities may disregard the position of individual providers is also apparent from the judgment passed by the Amsterdam district Court in the Transferium case. The Parlan care provider organised youth care in the Alkmaar region in the Transferium, a centre with 72 places for the most intensive form of youth care. The region put that form of youth care out to contract again and awarded the contract to Stichting Horizon. That had major consequences for Parlan, which instituted proceedings. The most drastic position taken was that the municipalities could not live up to the obligation to guarantee a “qualitatively and quantitatively adequate supply” of youth care (under Section 2.6 of the Youth Act). Parlan essentially argued that only it was able to provide that care. The court did not subscribe to that position, since the municipalities offered sufficient safeguards that Section 2.6 of the Youth Act would be met.
Freedom of contracting authority
In late 2018, The Hague district Court passed an interesting judgment related to a tendering procedure for educational tools, regarding a contracting authority’s freedom to award a contract. Of old, schools purchase teaching methods from distributors: workbooks are purchased and textbooks are hired from the distributors. That model has come under pressure due to digitalisation and personalised learning. Schools are increasingly applying the Licence Folio model (the “LiFo Model”), which centres on digital teaching material and in which “paper” plays only a supporting role.
Carmel is a group of schools that applies the LiFo Model. The new method has consequences for the tendering procedure for educational tools organised by Carmel. In the past, several teaching methods were purchased together with distribution work in a single lot. In the new arrangement, one teaching method is applied for per lot and the distribution is put out to contract separately. TLN, one of the distributors of educational tools, instituted proceedings against Carmel regarding the setup of the tendering procedure. It argued, among other things, that competition was being restricted by the setup of the tendering procedure and that the procurement-law principle of equality was being violated. The court disagreed and found that the setup of the tendering procedure allowed both suppliers and distributors to submit tenders for the lots for teaching methods. In the court’s opinion, the setup therefore had the effect of stimulating competition.
TLN furthermore argued that it could not really compete with publishers on a level playing field. In its opinion, publishers could always submit a more favourable tender than distributors. Moreover, teaching methods are purchased on the basis of a specific name and ISB number. Contrary to the customary tendering rules, those data may be prescribed in the tendering documents. Publishers and distributors are therefore in different positions by definition. In the court’s opinion, the contracting authority is not required to remove that difference. It is merely required to ensure that prospective tenderers are equally able to submit a competitive tender. The court found that Carmel had met that obligation. An appeal has been filed against the court’s judgement, so this is not yet the end of the matter.
Exclusion and reliability
On 24 October 2018, the European Court of Justice (“ECJ”) passed a judgment with practical implications regarding the exclusion of a tenderer on the grounds of previous violation of competition rules. A tenderer is not excluded if it can prove its reliability, for instance by actively cooperating in the investigation by the authorities (Section 57 of the Public Procurement Directive, enacted in the Netherlands in Section 2.87a of the Public Procurement Act).
Vossloh took part in a tendering procedure of Stadtwerk München after being fined by the German competition authority, the Bundeskartellamt. Vossloh had cooperated in the investigation by the competition authorities but had refused to provide Stadtwerk München with a copy of the fining decision. The contracting authority decided to exclude Vossloh from the tendering procedure because it had insufficiently proven its reliability.
Stadtwerk München’s decision gave rise to discussion on the German implementation of Section 57 of the Public Procurement Directive. The German version expressly states that a tenderer that wishes to prove its reliability must cooperate with the investigating authorities and with the investigation by the contracting authority. The ECJ found that the obligation to cooperate with the contracting authority was in keeping with the Public Procurement Directive, provided that that obligation to cooperate is limited to the measures that are necessary to allow the contracting authority to perform its investigation. It will be interesting to see whether contracting authorities in the Netherlands will in future demand more cooperation of tenderers that have been involved in cartel infringements.
The judgment is also of interest with regard to the review period when applying grounds for exclusion. It was not entirely clear in the past at what moment the review period commenced. The ECJ has clarified that the review period commences on the date on which the competition authority established an infringement.
This judgment is all the more relevant because ACM has announced that it will strictly supervise possible cartel agreements in tendering procedures. Several investigations, also in the care sector, are currently pending. Therefore beware of unlawful cooperation and prohibited exchange of information in tendering procedures!
More information on dawn raids by ACM and the European Commission can be found at invalacm.nl.